Hyatt Hotels Corporation (NYSE:H) Q1 2023 Earnings Conference Call May 4, 2023 9:00 AM ET

Company Participants

Noah Hoppe - SVP, IR and Financial Planning & Analysis
Mark Hoplamazian - President, CEO & Director
Joan Bottarini - EVP & CFO

Conference Call Participants

Stephen Grambling - Morgan Stanley
Joseph Greff - JPMorgan Chase & Co.
Dori Kesten - Wells Fargo Securities
William Crow - Raymond James & Associates
Charles Scholes - Truist Securities
Shaun Kelley - Bank of America Merrill Lynch
Richard Clarke - Sanford C. Bernstein & Co.
Duane Pfennigwerth - Evercore ISI

Operator

Good morning, and welcome to the Hyatt First Quarter 2023 Earnings Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the call over to Noah Hoppe, Senior Vice President, Investor Relations. Thank you. Please go ahead.

Noah Hoppe

Thank you. Good morning, everyone, and thank you for joining us for Hyatt's First Quarter 2023 Earnings Conference Call. Joining me on today's call are Mark Hoplamazian, Hyatt's President and Chief Executive Officer; and Joan Bottarini, Hyatt's Chief Financial Officer.

Before we get started, I would like to remind everyone that our comments today will include forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K, quarterly reports on Form 10-Q and other SEC filings. These risks could cause our actual results to differ materially from those expressed in or implied by our comments.

Forward-looking statements in the earnings release that we issued today, along with the comments on this call, are made only as of today and will not be updated as actual events unfold. In addition, you can find a reconciliation of non-GAAP financial measures referred to in today's remarks on our website at hyatt.com under the Financial Reporting section of our Investor Relations link and in this morning's earnings release. An archive of this call will be available on our website for 90 days.

And with that, I'll turn the call over to Mark.

Mark Hoplamazian

Thank you, Noah. Good morning, everyone, and welcome to Hyatt's First Quarter 2023 Earnings Call. I'm pleased to share financial results this quarter that, once again, highlight the transformation of Hyatt as resilient, predominantly fee-based and asset light. It was another record-breaking quarter as measured by adjusted EBITDA, plus net deferrals and net finance contracts. With the sum of these 3 numbers up 58% above the first quarter of 2022 and 69% above the first quarter of 2019, a notable achievement when you consider we sold $2.3 billion in real estate, net of acquisitions since 2019.

We have now achieved 4 consecutive quarters of record results, driven by our successful asset-light acquisitions and more recently, a RevPAR environment that is trending meaningfully above 2019 levels. Our agility, leadership and unwavering commitment to our purpose, to care for people so they can be their best, are key factors behind our success. We are proud to have been named to Fortune's 100 Best Companies to Work For List for the 10th consecutive year, a testament to the dedication of our colleagues worldwide.

I'm grateful to the Hyatt family for bringing our culture to life every day and caring for all our stakeholders, including our loyal guests. And I want to express my appreciation for all our colleagues who make Hyatt a unique and special place to work and to stay.

Our results demonstrate our momentum, which was also the focus of our recent owners conference at the beautiful Moxche Resort in Playa Del Carmen in Mexico 2 weeks ago, the same location where we will host our Investor Day on May 11. Our Owner Conference provides a unique opportunity to deepen our engagement and illustrate the differentiation of our personal relationship-based approach with owners.

A record number of owners were in attendance, and I was very encouraged by the enthusiasm and support we heard regarding the multiple ways we are driving value for owners, including commercial capabilities, financial performance and growth.

During the Owner's Conference, we announced the launch of our first upper mid-scale brand in the Americas, Hyatt Studios, tailored to meet the needs of extended-stay travelers. Our research indicates strong demand for this product amongst our guest base, presenting a unique growth opportunity to expand our footprint and strengthen our overall network effect.

Through close collaboration with developers, we designed the Hyatt Studios brand with flexibility, so construction and operating costs can adapt to a wide variety of markets. And I'm thrilled to share that we received an overwhelmingly positive response to the launch of the Hyatt Studios brand from our ownership community, with letters of interest representing over 100 hotels. We expect construction to begin later this year and the first Hyatt Studios hotel to open in 2024.

Our expectation and optimism on reaching broad scale is grounded in the brand's attractive economics, a supportive and well-capitalized developer base and the thoughtful design that was conceived through listening closely to guests and developers. Leading this brand is industry veteran, Dan Hansen, who joins Hyatt as Global Head of the Hyatt Studios brand. Dan brings a wealth of experience, having previously served as President and CEO of Summit Hotels.

He was instrumental in the concept and launch phases of the brand and is now focused on successfully scaling it. Dan has a proven track record of delivering results. And under his leadership, I'm confident the Hyatt Studio's brand will deliver a great hotel experience for our guests, while driving compelling returns for our owners.

The launch of Hyatt Studios is part of our broader strategy of creating a portfolio that drives deepening loyalty, stronger connectivity and more frequent engagement with our members. Our success in executing on this strategy can be seen in our World of Hyatt program, which added approximately 2 million members during the quarter. And we continue to see strong enrollments at our ALG properties, who have signed up over 500,000 loyalty members since the launch in May of 2022.

Building further on our momentum, we recently announced the planned acquisition of Mr & Mrs Smith, a global travel platform that will further strengthen our position in luxury. This planned acquisition opens new opportunities for the World of Hyatt program to expand and bring in even more members with access to over 1,500 carefully selected boutique and luxury properties and desirable locations worldwide. This planned acquisition will further drive asset-light growth and enrich the breadth of experiences for our guests.

Turning to growth. We achieved significant net rooms expansion with over 5,000 rooms added on a gross basis during the quarter, contributing to 7% net rooms growth over the trailing 12-month period.

On February 2, we completed our Dream Hotel Group acquisition, which contributed approximately 1,900 rooms. Additionally, our growth during the quarter included 3 luxury resorts and new openings in several high barrier-to-entry locations, such as Bordeaux France, Davos Switzerland.

We also expanded our locations in other important cities such as London, Mexico City and Austin, Texas. Notably, one exciting new opening, the Andaz Condesa Mexico City, was a conversion to the Andaz brand through an ALG resort owner, which underscores how our strategic acquisitions are driving value across multiple dimensions and positioning Hyatt for long-term growth and success.

We're confident in our ability to drive future net rooms growth through our strong pipeline and conversion opportunities. We maintained our record level of pipeline of 117,000 rooms in the first quarter with new signings offsetting our openings. Additionally, we maintained the percentage of rooms under construction relative to our pipeline across a diverse number of countries and markets. And despite a more difficult lending environment, we continue to see developers start construction for their properties in the U.S. and around the globe.

It's also great to see conversion opportunities continuing to represent a material percentage of our net rooms growth, at approximately 30% of our first quarter openings, excluding the acquisition of Dream Hotel Group. This reflects strong demand for our brands. Overall, we remain confident in our growth trajectory as we look ahead.

Moving on to the latest business trends. I'm pleased to report another quarter of positive momentum. We continue to benefit from our optimal positioning at this stage of the recovery. In the first quarter, comparable system-wide RevPAR was up 43% compared to the same period last year or 6% compared to the same period in 2019 of the same set of comparable properties. The growth compared to last year was partly aided by easier comparisons due to the impact from Omicron in 2022.

Rates remained strong, up 12% on a constant currency basis, while occupancy jumped 1,400 basis points. We continue to see extraordinary pricing for our comparable system-wide luxury brands, which increased 7% over the first quarter of last year, with an average daily rate just shy of $300 for the quarter. This is particularly impressive given the strong rate realization we are lapping from last year.

From a segmentation perspective, leisure transient showed durability and strength, with revenue increasing by 20% compared to the first quarter last year or 24% compared to the first quarter of 2019. Leisure demand in urban markets broadened, with weekend and shoulder periods well ahead of the first quarter of 2019. And resorts achieved another record RevPAR level, driven by strong levels of rate realization and increased occupancy. We experienced robust revenue growth in the group segment with an increase of approximately 70% compared to the first quarter last year and surpassing the first quarter of 2019.

Business transient had the strongest relative recovery, more than doubling last year's first quarter revenue and reaching approximately 85% of first quarter 2019 levels with March, especially encouraging, reaching 92% of March 2019 levels. Large corporate accounts had the most recovery momentum in the quarter while small and medium enterprises improved slightly, and we're in the same approximate range as 2019 levels.

From a geographic perspective, our Asia Pacific region contributed significantly to our first quarter growth and was 3% ahead of first quarter 2019 levels. Notably, RevPAR performance in Greater China quickly ramped up following the easing of travel restrictions, a pattern similar to other areas of the world.

In the first quarter, RevPAR in Greater China was only 4% below first quarter 2019 levels, a significant improvement compared to 3 months prior when it was 44% below 2019 levels. In addition, RevPAR in Mainland China in the first quarter surpassed the comparable period in 2019 by 10%. However, performance varied across markets. Markets more traditionally dependent on international inbound travel, like Shanghai and Shenzhen, remained meaningfully below 2019 levels, while markets more traditionally dependent on domestic travelers were significantly above 2019 levels.

In total, rooms revenue from domestic Mainland China travelers in the first quarter was up 30% compared to 2019 levels, while international inbound was down more than 60% compared to the first quarter of 2019.

We remain optimistic that growth in the Asia Pacific region will continue to strengthen as flight capacity is restored and the backlog of issuing new visas to Chinese travelers is reduced. We're confident this increased access to travel will serve as a strong tailwind for Hyatt as the year progresses. Our ALG resorts had another exceptional quarter with comparable net package RevPAR up 30% in the Americas and up 36% in Europe compared to last year. Additionally, I'm pleased to report a strong rate of adoption from our loyal World of Hyatt customer base.

In the Americas, we have seen more than 20% of room nights at ALG resorts from World of Hyatt members in the first quarter. This is particularly impressive, given that World of Hyatt was introduced at ALG resorts only 10 months ago, a clear indication of the successful ongoing integration of ALG properties into Hyatt's expanding set of offerings.

As we look to the second quarter of 2023, both legacy Hyatt and ALG Resorts continue to perform exceptionally well. Based on preliminary results, system-wide RevPAR in April increased by approximately 20% compared to last year. We expect the second quarter growth rates to moderate relative to the first quarter, driven in part by the strong recovery we began to see in the second quarter of last year.

Looking ahead to the back half of the year, we expect RevPAR and net package RevPAR to grow in the mid- to high single digits.

For the full year of 2023, group revenue is pacing 24% ahead of last year for our Americas full-service managed properties. This represents an increase of 300 basis points from the update we provided a quarter ago. Separately, gross package revenue at our comparable ALG resorts in both the Americas and Europe for the full year is pacing 17% ahead of last year.

In summary, overall business trends are positive, and we maintain our optimistic outlook. Future bookings remain strong, and our hotel teams continue to drive strong top line growth and flow through to the bottom line.

Finally, a quick update on our real estate transactions before turning it over to Joan. We continue to make progress on the 2 assets we're actively marketing with a signed letter of intent for 1 asset, and we are advancing the marketing process for our other assets. We remain focused on realizing the most attractive valuations and securing durable long-term management or franchise agreements. And we remain highly confident in achieving our $2 billion sell-down commitment by the end of 2024.

In closing, I'm very pleased with the start of the year, which actualized well ahead of our expectations. Our strong free cash flow profile and asset-light earnings mix are a result of the strong execution from our team. Looking ahead, I'm confident in our ability to continue to drive results and deliver value to our shareholders.

Joan will now provide details on our operating results. Joan, over to you.

Joan Bottarini

Thank you, Mark, and good morning, everyone. My commentary today will cover consolidated financial results, key drivers of performance and expectations I can share for the remainder of 2023.

This morning, we reported first quarter net income attributable to Hyatt of $58 million and diluted earnings per share of $0.53 and another record earnings for the quarter with adjusted EBITDA of $268 million, Net Deferrals of $31 million and Net Finance Contracts of $17 million. We also generated a record level of fees in the quarter with total management, franchise, license and other fees of $231 million, an increase of 50% from the first quarter of 2022, driven by the continued success of our asset-light transformation and strong recovery across the globe.

It's notable that properties that have joined our system in the last 5 years, including the brand's acquirers who are Two Roads Hospitality and Apple Leisure Group acquisition, contributed 35% of our total fees in the quarter. The performance of these properties is benefiting from significant contribution from World of Hyatt members, enhancing our network effect as we expand our portfolio with additional opportunities for our members to experience more stay occasions with us.

Turning to our legacy Hyatt results. Adjusted EBITDA was $189 million for the quarter, which is approximately 108% higher than the first quarter of 2022, adjusted for currency and the net impact of transactions. Our management in franchising business has benefited from our larger system size and more fully recovered RevPAR environment. As Mark mentioned, our first quarter system-wide RevPAR was up 43% compared to first quarter 2022 or up 6% compared to first quarter 2019, fueled by strong rates and positive momentum in occupancy.

RevPAR performance relative to 2019 has strengthened in each month as the year has progressed, with the month of March at 8% ahead of 2019 levels and setting a new record for our highest RevPAR month ever recorded on a constant currency basis. We are thrilled to see a rapid RevPAR recovery in Greater China, driven by fully recovered occupancy levels relative to first quarter 2019 with rates that are quickly strengthening quarter-over-quarter.

This has contributed to a swift recovery in fees within the Asia Pacific region with fees of $38 million in the first quarter compared to $16 million in the first quarter of last year. We're encouraged by the momentum in the region and believe it will continue to serve as a tailwind for us throughout the year.

Additionally, in the quarter, our owned and leased segment generated adjusted EBITDA of $74 million, up 37% to first quarter 2022 on a reported basis. And when adjusted for the net impact of transactions, up $44 million or 151% in the first quarter of 2022. Comparable owned and leased margins were 25.9% in the quarter, up 900 basis points to first quarter 2022 levels or up 300 basis points relative to the first quarter of 2019 for the same set of properties.

While results were supported by a strong recovery in business transient and group revenue, our operational and commercial teams are doing an excellent job, both driving strong top line growth with rates over 11% and maintaining a laser focus on controllable operating expenses to expand margins.

Turning to ALG. The performance of this segment, once again, exceeded our expectations. Adjusted EBITDA was $79 million, Net Deferrals were $31 million and Net Finance Contracts were $17 million. Free cash flow generated by ALG continues to be strong, and 3 key areas drove financial results.

First, net package RevPAR for the same set of ALG properties in the Americas was up 30% compared to the first quarter of 2022, reflecting strong net package ADR growth of 14%. Total fees were $39 million in the quarter, reflecting the strong RevPAR environment.

Second, approximately 8,800 membership contracts were signed for ALG's Unlimited Vacation Club in the quarter, exceeding first quarter 2022 levels by 13%. UVC now has 134,000 active members as they continue to expand at an impressive pace.

And third, ALG vacations continues to generate solid results, driven by a transformed business model and strong unit pricing.

In the quarter, there were approximately 689,000 guest departures, and the business realized a margin of approximately 20%. As we look further into 2023, we are optimistic about the second quarter, given the trends in April, the expected continued strength of leisure travel demand, favorable pricing environment and airlift that remains above 2019 levels for key Americas leisure destinations.

I'd also like to provide an update on our strong cash and liquidity position. As of March 31, our total liquidity of approximately $2.5 billion included $1.1 billion of cash, cash equivalents and short-term investments and approximately $1.5 billion in borrowing capacity on our revolving credit facility.

At the end of the quarter, we reported approximately $3.1 billion of debt outstanding. As of March 31, we have $648 million maturing in the fourth quarter of this year and expect to make this obligation through a combination of paydown and potential refinancing.

Record operating performance and asset-light growth are contributing to our strong free cash flow. Through the first 4 months of the year, we have repurchased $114 million of Class A common shares, and we have approximately $445 million remaining under our share repurchase authorization. We remain committed to our investment-grade profile, and our balance sheet is strong.

Finally, I'd like to make a few additional comments regarding our 2023 outlook. We are increasing our full year 2023 system-wide RevPAR growth expectations to a range of 12% to 16% compared to 2022 on a constant currency basis. We continue to expect larger growth rates over the first half of the year in the mid- to high-20% range. And as we have a bit more visibility into the second half of the year, we now expect RevPAR growth will be in the mid- to high single digits. The continued recovery in Asia Pacific and ongoing improvements in group and business transient demand serve as key contributors to our improving RevPAR growth expectations over the back half of the year.

Turning to net rooms growth and consistent with our estimates provided on our fourth quarter earnings call in February, we are reaffirming our expectations of net rooms growth of approximately 6% for the full year of 2023, driven by a strong pipeline and our ability to execute on conversion opportunities. We continue to expect adjusted SG&A to be in the approximate range of $480 million to $490 million in 2023, inclusive of approximately $15 million of onetime integration expenses associated with carryover projects from 2022 for ALG and the acquisition of Dream Hotel Group.

Our SG&A guidance is inclusive of incremental run rate SG&A related to the Dream Hotel Group acquisition as well as strategic investments to launch our newly announced Hyatt Studios brand. We continue to expect capital expenditures to be approximately $200 million, inclusive of ALG as well as the transformative investment into the Hyatt Regency Irvine, which accounts for nearly 1/4 of 2023 capital expenditures. I'm excited to report that this newly renovated property in a highly desirable market and scheduled to reopen later this summer, an accelerated time line from what we previously disclosed and anticipated.

I will conclude my prepared remarks by saying that looking ahead, we are optimistic as we continue to leverage our unique positioning and strategic focus to unlock the value of our real estate assets while transitioning to an asset-light and predominantly fee-based business model. This strategy has allowed us to increase cash flow, positioning us for long-term growth and creating value for our shareholders.

One final reminder to share. We'll be hosting our Investor Day next Thursday, May 11. In addition to hosting investors and analysts in person at our beautiful Moxche Resort in Playa Del Carmen, Mexico, we will also stream the event live. And we invite all those interested in our live stream to register on our Investor Relations website or by going directly to investors.hyatt.com.

Thank you. And with that, I'll turn it back to our operator for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions]. Our question comes from Stephen Grambling from Morgan Stanley.

Stephen Grambling

Maybe given all the concerns around the banking system and tightening credit, I would love to just hear what you're seeing from developers. I know how you're higher thinking about the visibility within the current pipeline. And perhaps more specifically, what percentage of the in-construction pipeline is in the U.S. versus international? And what's been financed already?

Mark Hoplamazian

Thanks, Stephen. First of all, with respect to the pipeline -- composition of the pipeline and the properties that are under construction, it's expanded actually from sequentially year-over-year. About 20% of the hotels that are under construction are U.S.-based hotels. And obviously, they're, therefore, 80% outside the U.S. And so we haven't really seen a significant impact or any impact actually on a sequential basis probably for the last several quarters. It's been in the same range.

The capital formation for new starts is very challenging because regional and local banks are -- backed up their provision of credit. Having said that, in discussions with a number of our developers with respect to our new brand, more and more developers are recognizing that while this confidence of crisis -- crisis of confidence, I should say, in banking right now is likely a short-term phenomenon -- almost certainly a short-term phenomenon.

And therefore, when you look at the relatively lower supply growth that the industry has experienced and given the attractiveness of the brand that we just launched, we are hearing from our developers that they're ready to begin construction, even if they have to over-equitize or otherwise get more creative about how to source capital. So we have great confidence that we're going to have our first Hyatt Studios under construction this year and open before the end of next year.

So that's encouraging to me because if you look historically, our build and supply growth has been -- it's been sort of pro-cyclical. We start building more and more hotels as the cycle improves and improves, and those hotels start to open, which exacerbate cycles. That's what happened in 2008 and '09. You'll remember that those were 2 high single-digit, low double-digit supply growth years in the teeth of a downturn. And this is the time to start building hotels right now.

So I think that more developers with a long -- developers that have a good balance sheet and long-term perspective, are getting more creative about finding capital. And overall, the macro picture is stable with respect to hotels under construction.

Stephen Grambling

That's helpful perspective. Maybe one follow-up. It's related in some ways, but on the asset sales side, some of the hotel REITs have been offering seller financing to close deals and excited pressure in closing transactions over $100 million. Are you seeing or expecting anything similar in terms of the outcome that you're looking for from the marketed assets? Or have you even changed what assets you're thinking about potentially putting into the market?

Mark Hoplamazian

It's circumstantial, as you know, by market and by asset type. Yes, we are very aware of what's going on in the marketplace. While we have not provided seller financing to date, we would certainly be open to that to get the right deal done for the right asset. So it's possible that we will turn to that.

I also think that the activity level has been -- we have slowed our -- we witnessed a slowing in the activity level in general. And therefore, we're being very deliberate about what we bring to market and when. But we still have 100% confidence we're going to complete our sell-down by the end of next year.

Operator

Our next question comes from Joe Greff from JPMorgan.

Joseph Greff

Mark, Joan, how are you thinking about the cadence of ADR growth in the second quarter and in the second half of this year?

Mark Hoplamazian

So good news is that we've seen -- as we look at pace in group, let's say, we're up 24% for the year. And new bookings right now are pacing ahead in ADR versus what's on the books already. So as we look at new bookings, as they come through post the first quarter when that calculation was made, we're seeing an increase in ADR booking levels.

The same is true for the AMR portfolio. So we're seeing increases -- continued increases in rate. So we see a positive progression. In the first quarter, leisure resort ADRs were up 1%, I think, year-over-year, which is quite remarkable given how explosive the ADR growth was a year ago. And so we feel actually like not only our core resort ADRs maintaining and growing, but it comes at a time when non-resort leisure business has gone up significantly. So we're seeing occupancy increases and ADR increases for leisure purposes of visit in non-resorts. And despite that movement and expansion or extension of leisure trips, our resorts continue to maintain and grow ADR.

Joan Bottarini

Yes, I would just add, within the guidance that we've provided, the RevPAR guidance, Joe, that we're anticipating that we continue to sustain these rates within kind of a mid-single-digit levels. And what we see also on the occupancy side is growing demand, which we've also incorporated into -- of what was incorporated into our estimates for full year guidance. And we still anticipate that coming out of the year, we're still going to have a minor gap to 2019 on the occupancy front. So ADR is still sustaining. Group -- or demand is -- continues to grow on the occupancy side, and we still see that we have room to grow beyond 2023 coming out of the year.

Joseph Greff

Great. And then my follow-up question is, looking at ALG managed rooms, that was down on a net basis sequentially and also down sequentially in the fourth quarter. Can you talk about what's driving that? And can you anticipate growing that on a net basis from here?

Mark Hoplamazian

Absolutely. We have an expectation for robust openings here this year within the ALG Resorts portfolio. The attrition that we experienced was actually expected. There was a small portfolio of hotels in Europe that we expected. When we underwrote the deal, we knew -- we had a suspicion that those -- I think it's 5 hotels in Europe that left the system, because the owner had advised us that they were likely going to be selling in those contracts, which date back, I don't know, 5 or 6 years, had a termination-on-sale provision in them.

So we just assumed that they were going to go, and they did. And that was the primary driver of the attrition in that period of time. But we feel really good about the growth that we will see in the remainder of the year.

Joseph Greff

And attrition is behind us? Or is there still some remaining attrition left to be realized?

Mark Hoplamazian

I mean, on a portfolio basis, there's always a chance that you might see some here and there, but in general, we don't -- there's no other structural or contractual risks that we had identified that we expect to see leave the system.

Operator

Our next question comes from Dori Kesten from Wells Fargo.

Dori Kesten

You addressed this a little bit, but -- so the China are relatively large piece of your pipeline. Can you differentiate the environment between China and the U.S. for signings, your funding availability and just your expectations for construction starts as the year goes on?

Mark Hoplamazian

Sure. The projects that in China were, in large measure, put on hold during the course of 2022. The ability to actually get back to being in construction and progressing those has only really opened up in the first quarter of this year. So we are just beginning to sort of ramp back up because that's when all the COVID restrictions were released -- or well, they were brought back significantly at the beginning of the year.

So we do see it -- we still have quite a few projects on hold. We do not expect them to remain on hold for much longer. And so we -- what we expect to see is a increasing level of properties under construction in China over the course of this year. Signings actually remained robust. We've had a couple of great openings as well of luxury hotels.

Asia Pacific, overall, just to give you a perspective on this, is in the first quarter of this year, 46% larger in room count than it was in 2019 first quarter. And 60% of that growth, 60% or 70% is luxury and upper upscale hotels, 70%. So we've had a significant expansion, and that continues. We've seen a new Andaz hotel and other full-service hotels opening both in China and Asia Pacific. So the quality and the composition of our openings in the region have continued to maintain at a high level.

We're not populating -- the growth is not really concentrated in lower chain scales. It's concentrated in the higher chain scales, which means greater fees per key and higher fee levels, including incentive fees going forward. So we feel like we're really positioned for growing momentum in the fee side of the business. That translates into developers seeing that this is the right time to get their hotels completed and opened.

Dori Kesten

And where is the majority of financing in China where you can talk to like greater Asia, where did that come from?

Mark Hoplamazian

Well, it's kind of -- it is true that the credit markets have really been through the ringer given some of the significant dislocations on the private sector -- in the private sector in financing. So for those developers that are highly dependent on leverage like that, it's going to have an impact. The majority of our hotels, we have some private developers that are dependent on that kind of financing, but we have a larger proportion of properties that are in the pipeline with state-owned or state-supported enterprises with very large balance sheets. So they're less dependent on the last dollar of financing -- debt financing.

Operator

Our next question comes from Duane Pfennigwerth from Evercore ISI.

Duane Pfennigwerth

Maybe just one quick one on some of the segment reporting geographical segment reporting changes. Any thoughts on why the changes to some of the geographies?

Mark Hoplamazian

If you're talking about the change in segments, we moved the Indian subcontinent from EAME to Asia Pacific as of the beginning of this year because the oversight reporting relationship changed. That's the principal segment change. That's probably what you're picking up.

Duane Pfennigwerth

Okay.

Joan Bottarini

I'd just give a little bit of color on the magnitude of the change, that Indian subcontinent in the total Asia Pacific region as far as their fees, the contribution to fees is about 15% of the fees that we reported in 2023 in the first quarter. And from an EBITDA perspective, just to help you a little bit with the modeling, we had about $12 million of EBITDA in 2022 coming from the Indian subcontinent.

Now the performance of those hotels has been very strong. We've seen RevPAR growth consistent with overall Asia Pacific RevPAR growth, excluding the Indian subcontinent in the first quarter levels of 100%. So really strong growth, and it really isn't an outlier when you look at the overall region relative to the 2 components that were brought together.

Duane Pfennigwerth

That's helpful. And then just for my follow-up, can you talk a little bit about maybe just organizationally new business development and recruitment of new assets for brands that you acquire? So what does the onboarding process look like? Who are the folks involved with sort of growing those portfolios on the brands that you acquire? And maybe you could give some color on ALG. What geographies are you focused on? And maybe some early thoughts on Dream's as well.

Mark Hoplamazian

Great. Thank you very much. First of all, it's important to note that in the acquisitions that we've made, we retain key developers -- development executives in the organization that know the brands intimately. That was true for Two Roads Hospitality. That was true for ALG, and it's true for Dream Hotels as well. We're bringing across the key team members who know those brands the best and know the developers that they've been doing business with and have signed deals for future openings.

We have enhanced that significantly. So the Two Roads portfolio has grown enormously. We'll be going through a much more detail on these topics a week from today. But it's grown enormously, and that's because we have expanded the development effort behind the Two Roads brands to include all Hyatt developers who have come up the learning curve and can really speak to those brands with authority, and that's on a global basis.

We're seeing increased interest in some of those brands -- some of the Two Roads brands globally. On the Dream's front, we have 24 signed agreements that I think only 1 or 2 of them or a small number are in the pipeline. We're not counting them in the pipeline yet because we have a pretty high bar when it comes to making it into our pipeline statistics. The pipeline means we have fully executed contracts and we have high confidence and visibility to financing.

And many of those projects are signed but not, in our opinion, financed yet. By the way, the Dream Hotel Group actually treated them the same way. So they didn't really count them until financed. So we have confidence that they will get financed because the brand is really performing well and the primary brand being Dream. But stay tuned for when those come into the pipeline as we move forward.

ALG, we have growth initiatives, both in Europe and in the Americas. Having said that, we have been responding to and pursuing additional regions in the Middle East and in Asia. So I would be surprised if we did not end up with new projects in those 2 regions in short order because the interest level is very high. We're taking a very careful approach to make sure that the core economics and our ability to deliver on a distribution channel basis is that we have confidence in that. Because right now, we don't operate those 2 markets in the all-inclusive space. And in fact, it would be relatively a new format for much of those regions. So we're taking it very carefully.

The good news is the model is so powerful from an economic benefit perspective to owners that we have high confidence that we will actually be signing and ultimately opening new hotels in those regions.

Operator

Our next question comes from Patrick Scholes from Truist Securities.

Charles Scholes

I wonder if you could give us some high-level thoughts on how you see summer leisure demand shaping up for various regions such as domestic resorts versus Caribbean resorts versus Europe? And how that strength or possible weakness compares versus last year -- last year's summer visitation?

Mark Hoplamazian

Yes, I'll start, and Joan can add the additional color. Just looking at the resort demand and using ALG as a proxy, our pace for ALG is up 15% for the year. It's plus for the second quarter. So we feel really -- and that's lapping a very strong second quarter last year.

So we feel really good heading into the summer actually. And the business in Europe has been just astonishingly strong. It is tracking ahead of 2019 in the mid- to high single digits in business transient. Leisure is ahead of '19 significantly. So I would say Europe is -- I thought '22 was going to be the breakout year for Europe. I was off by a year. This is really the breakout year for Europe. We're seeing people come back to travel, including business travel in a more pronounced way relative to 2019 than we've even seen in the United States. So I feel really actually quite bullish on Europe and continued strength there.

Joan Bottarini

The only thing I would add is that we've seen, and you all have seen, the flight capacity increases that have been made to those leisure destinations, particularly for us in the ALG markets in the Caribbean. And with that increase, it's really helped to increase demand into those markets.

One thing I would point out is that last year, what we saw for ALG was we saw an incredible surge coming out of the first quarter into second quarter and third quarter. And that was really filling in for last year into what had traditionally been a -- what we would call a shoulder period for ALG. So this year, as we look at the seasonally adjusted normalization pattern, we anticipate that Q3 will be more moderated as it relates to leisure into the Caribbean and Latin America.

Mark Hoplamazian

Yes. I mean just to give you a data point on Joan's point about airlift. Our departures through our ALG vacation's platform were up 19%, 19% in the first quarter of this year. It's a staggering number when you consider that, that represents almost 700,000 travelers. So -- and you can't do that if you don't have lift. And so airlines have cascaded capacity into the markets that are most important to us.

Charles Scholes

Okay. And then just the other part of the question, how about domestic U.S.? It certainly sounds Caribbean, very, very strong Europe, phenomenal, but how about the traditional U.S. resorts?

Mark Hoplamazian

Yes, I feel very good about U.S. resort performance. We saw a couple of individual markets within Hawaii, not the entirety of the state, but that has -- that have some slight airfare issues, in our opinion, that may be impacting demand total bookings. But apart from 1 or 2 individual locations in Hawaii, the rest of the resort portfolio looks very strong. It's a little early for us to be calling Memorial Day and July 4, but we'll have a lot more color on that on our next earnings call.

Operator

Our next question comes from Bill Crow from Raymond James.

William Crow

Two quick questions. The first one on China. The reopening of China seems like it coincided with some of their major holiday periods and spurred demand. I'm wondering how the pace of travel looks outside of those holiday periods?

Joan Bottarini

Well, Bill, for the entire quarter, Greater China was only down 4% for the entire quarter. The Lunar New Year holiday certainly helped, but we're seeing very strong demand, especially on a sequential basis because that was down over 40% in the fourth quarter. So really strong results coming out of China.

And what Mark had commented in his remarks was that we are up in Mainland China, 30% on domestic business, which is exceptionally strong. And we saw a 60% reduction in international inbound. So when you think about the tailwind of when those -- when that flight capacity returns into China, there's a lot of runway for growth into the region.

With the greater China results being a little bit down and Mainland China being up 10%, we still have room to grow too as it relates to Hong Kong, in particular. Flight capacity into Hong Kong had been really restrained. And what we saw in the last couple of weeks, actually, including the Labor Day holiday, was that Hong Kong had returned back to 2019 levels. Short period of time but again, that surge in demand that we've seen over time and again, restrictions are lifted, and they've been lifted for the entirety of the last 4 months. We've really seen it sustain and continued to be very encouraging as we think about the future growth in that region.

William Crow

That's perfect. The second question was on -- I think you said business travel, and assuming BT travel is 85% recovered. Again, I'm going to assume that's the demand as opposed to RevPAR. But assuming I've got that right, do you think we close that gap through the balance of this year, continue to make progress? Or has the kind of the macro environment here, some of the layoffs and maybe the totality of travel costs, is that going to kind of subdue the growth that we get from this level?

Joan Bottarini

Well, it has been improving over the course of the quarter. So we were over 90% recovered from business transient in the month of March.

Mark Hoplamazian

Yes, I think we were like 93% recovered. So we are really inching up to what -- on a revenue basis, 2019 levels.

Joan Bottarini

Yes. And throughout the quarter, our RevPAR comparisons to 2019 have accelerated across the months in the quarter. And in April, we also saw an 8% RevPAR growth over 2019, which is similar to what we saw in March. And a lot of that is being driven by business transient recovering, particularly in markets in the U.S. but also in markets in Europe have been very strong.

Mark Hoplamazian

Super strong.

Joan Bottarini

They're actually over 2019 levels in the first quarter in our European markets. So we're seeing business transient come back on a relative basis and growing in momentum.

William Crow

So how close is rooms demand or rooms sold? You said it was 93% revenues. I'm just curious about the actual occupancy, if you will, of business travel.

Mark Hoplamazian

Yes. So we're tracking well behind 2019 levels in occupancy for the hotels that we would designate as business-focused hotels. I don't know that we've got a quick estimate for Q1 in terms of what the gap is, but we've been tracking well below 2019 levels, obviously, higher rates that makes up the revenue side.

The only other dynamic I would point out is that small and medium enterprises have basically been over 2019 levels for several quarters. It's the large corporates that are actually representing a lot of the growth. So when we talk about the growth over the course of the quarter, the quarter was 85%. We ended at 93%. 85% of '19 levels, we ended at 93%. A lot of that changed. In fact, virtually all of it came from large corporates. So we're seeing large corporates to get back on the road.

And some of the blurring of the line between what used to be called business transient, where I think everyone sort of had in their mind, a bright line between business transient and group, that line is blurred. So some of the purposes of visit and trip drivers from 2019 have looked different today, and some of it shows up as group business instead of business transient.

William Crow

All right. Perfect. Look forward to seeing you next week, I guess it is.

Mark Hoplamazian

Likewise. Thanks.

Operator

Our next question comes from Richard Clarke from Bernstein.

Richard Clarke

I'd just like to start on the topic of the Mr & Mrs Smith acquisition you've done. This company used to have a deal with IHG, and IHG used to talk about having to be quite selective with which one of the hotels they brought into their platform to make sure this wasn't providing a cheaper route to the benefits of being distributed by a major company.

Just wondering how you're going to manage that? Are you going to have some of those Mr & Mrs Smith hotels beat with your hotels? And how will you manage that conflict? And then maybe broadly, why do you see this as an attractive addition to the portfolio?

Mark Hoplamazian

Thank you, Richard. Just to clarify, we have signed this acquisition deal, but we have not yet closed it. So let me just begin by being clear about where we stand. The way we see this is, first of all, for those of you on the phone who don't know much about Mr & Mrs Smith, it's a travel platform. And there are well over 1,500 hotels on the platform, a highly curated group of boutique and luxury hotels with average daily rates in the mid-400s in dollar terms, just to give you a sense for relative quality level, and they're small. So these are not hotels that would naturally be part of a larger brand company like ours portfolio. And we feel like this is a massive expansion in the World of Hyatt members' access to hotels.

Having said that, we -- in the same vein that we have done other affiliations in the past, we have taken great care to analyze on a market-by-market basis the sort of hotels that might end up being adjacent to or otherwise in the same vein of preexisting Hyatt properties. So we will be very careful in how we integrate the hotels that are part of the system. All the hotels, we expect to stay on the platform but that doesn't mean that they're all integrated. And I think we have examples -- an example of how we manage that with small luxury hotels, where we didn't have 100% of the small luxury hotel group -- hotels themselves on our platform.

So the enterprise will continue to operate as an independent business and continue to grow, which it's been growing at a pretty healthy pace, and we expect that growth to continue over time because there is -- there are a large number of higher-end boutique luxury hotels that operate independently of any brand affiliation. And so the power of the channel has been proven because of their very strong customer base.

That customer base looks a lot like ours. And so we're really excited about extending and expanding the customer base, the World of Hyatt membership base.

World of Hyatt has got great momentum, adding 2 million members in the first quarter alone. So we feel like this is going to be really adding to the network effect.

Finally, as an economic matter, the company is profitable. And as in -- as has been the case with other platforms that we've looked at in the past, we do see a relatively clear path to a high single, low double-digit kind of multiple on our purchase of the platform. The power of the platform is something that we have a much better handle on and understanding of having had ALG vacations as a part of our portfolio for the last 1.5 years.

So I think across the board, we're just uniquely positioned to really understand this better, see what the power is, extend the network effect and add value to the hotels that are part of that platform. That's the theory.

Richard Clarke

Okay. That's useful color. And as a follow-up, just looking at your last year, the Q3 results you talked about doing 6.5% growth growing. You're thinking about that picture of going forward? Does it come down to 6% and then accelerate? Or could you get it back above 6.5% in the nearer term?

Mark Hoplamazian

Yes, we feel really good about the long-term trajectory in that range. And to just to be clear, there are some of the uncertainties that we actually touched on earlier in this call, namely financing for new projects in the United States, the ramping up of projects coming back online in China and so forth.

It's also true that 30% of our adds in the first quarter were conversions. So the conversion -- the durability of the conversion activity base has not only proven itself, but we're seeing even more opportunities in conversions looking forward. So we are piecing together, because of the performance of our network and the system, a picture for net rooms growth that we expect to maintain at that level or higher.

The fact is that we, for conservatism, take reserves against what we could execute this year, and that's why we're maintaining our current guidance. I think if we had more visibility to when confidence begins to grow in the banking sector and/or taking note of the Fed's decision yesterday to change the language with respect to future rate increases, these are all factors that could contribute to a revised outlook next quarter. But right now, we have maintained a -- I would describe it as a conservative position, just because there are some uncertainties in the world.

Operator

Our last question will come from Shaun Kelley from Bank of America.

Shaun Kelley

Mark, I apologize if I'm front-running the Analyst Day a little bit, but given all the commentary on international and the different trajectories of recovery, I thought it might be helpful if you can provide, just inclusive of ALG, what's your kind of latest, however you want to do it, revenue, fee, EBITDA mix by region? Is that something you could help us with?

Just I know the portfolio has changed a decent amount, especially with ALG. And so what I'm kind of getting at is how much of Hyatt pro forma run rate is coming from the U.S.? How much coming from Europe, APAC, ex China and China? If you don't have that, and that's a better thing to reserve for a week from now, I totally appreciate it.

Mark Hoplamazian

I think the -- at a macro level, the fact is that something on the order of 80% of our earnings base is coming out of the U.S. That includes our owned hotels portfolio, so there's some measure of influence on that number for that. And I think the -- we really need to break out the non-hotel pieces of ALG, which is really the vacations platform in order to give you a better handle on what our hotel exposures look like around the world, but we don't have the data at this point that I can give you more specificity on. Do you want to add anything to that, Joan?

Joan Bottarini

Yes, I would just say of the 80%, it's really -- you mentioned, Mark, from the U.S. So it includes our Latin American and Caribbean business, which is a significant proportion of those travelers are coming from the U.S. So it's U.S.-based actual traffic.

Mark Hoplamazian

Correct.

Joan Bottarini

Demand that you're referring to in the 80%.

Mark Hoplamazian

Yes.

Shaun Kelley

Very helpful. Sorry to put you on the spot, especially late in the call, but I appreciate it.

Mark Hoplamazian

No, that's fine. Thanks, Shaun.

Operator

This concludes today's conference call. Thank you for participating, and have a wonderful day. You may all disconnect.